Major US and EU indices hit fresh highs heading into the Fed meeting, only for momentum to stall after Chair Powell downplayed the certainty of a December cut. Markets now price in a 65% chance of a 25bp cut next month, while leaving 2026 expectations largely intact (65bp total). Nevertheless, the SX5E and Nasdaq are nearly back to last week's all-time highs, buoyed by the pause in QT set to begin on 1 December, a clear tailwind for risk assets.
With c.65% of the S&P500 having reported, the earnings season is still a favourable backdrop for equities, as the blended earnings growth for the quarter continues to rise, now standing at 10.7% following last week’s decent Mag7 earnings. The blended Info Tech growth rate increased to 25.6% from 20.9% at the start of the season. In Europe, 48% of STOXX has reported with the current reported growth rate for the quarter trailing at 6%, with the strongest YoY growth posted in Tech and Financials at 20% and 16+% respectively, while the weakest growth is seen in Energy and Auto sectors. Revenue for the SXXP has only seen marginal growth of 0.4% YoY but the 3Q earnings season continues to surprise to the upside, likely driven by low initial expectations. Despite the strong earnings season, the reward for positive earnings surprises has been less than usual while negative surprises have been heavily punished, likely indicating slowing momentum. The MAG7 skew at all-time lows also likely reflects complacency given the groups high concentration.
In terms of key events for the week, given NFP payrolls will not be released due to the ongoing government shutdown, so the market will be focused on Wednesdays ADP’s report of private payrolls where consensus expects a print of +30k (prev, -32k). The earnings season continues with Palantir, AMD, McDonald’s, and Pfizer in the US and BP, AstraZeneca, Novo Nordisk, Rheinmetall and Ferrari in Europe centre stage.
With prices close to all-time high we see merit in looking for downside in select names and reiterate our latest Rio Tinto trade idea.